Explanation:
Risks in democratic governments are continuous, but generally low. Countries with autocratic leadership have discontinuous risk because policy changes are often severe and difficult to protect against.
(Book 4, Module 51.1, LO 51.a)
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Question 97
Political risk is a broad risk, encompassing items such as whether a country is a democracy or a dictatorship and the smoothness with which a country transfers political power. Which of the following statements regarding how political risk affects investing is most likely incorrect?
A
It is not clear whether authoritarian or democratic governmental regimes produce higher economic growth.
B
Some investors prefer the stability of investing in companies from countries where one leader controls decision-making.
C
Countries with democratic governmental policies have discontinuous risk because policies change frequently.
D
Countries with high government corruption impose an implicit tax on investors because they directly reduce company profits and returns.
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